Bookkeeping is the basis for further accounting and is a critical function that helps in financial management. It is a process that can simplify or complicate the entire accounting function and lead the business to lousy business decision-making. Therefore, businesses need to be very diligent in the bookkeeping process for better financial management. To ease the process, a business can hire an in-house full-time or part-time finance team or outsource it to an expert bookkeeping services provider. Outsourcing the bookkeeping process is a better option for businesses as it saves time and resources and ensures accuracy. Though the service providers make the process easier, there are certain bookkeeping tips that a small business can follow to simplify its financial management. Let us know more about such steps or tips in detail.
Bookkeeping and its importance
Bookkeeping is the process of regularly tracking and recording the business’s financial transactions to help make important business decisions. The records prepared under bookkeeping are used to verify the accuracy and reliability of the data and prepare financial statements and reports for the business. Accuracy of business bookkeeping determines the accuracy of the business’s accounts and affects the business’s reputation and customer’s trust accordingly. To streamline the process, businesses hire help from expert bookkeeping services providers, in-house or outsourced.
However, many businesses still fail to understand why regular and accurate bookkeeping is compulsory for small businesses. Following are some benefits of bookkeeping, making it important for small businesses:
- It helps in tracking and organizing business records
- It helps create accurate financial statements and records
- Enables good decision making
- Aids in the tax filing
- It helps attract new investors and build trust
Tips to simplify financial management
Even though bookkeeping is essential for small businesses, diving into the ledgers and accounts is not always fun. However, watching the business profits grow is always fun and desirable. To help with the process, small businesses hire accounting and bookkeeping services with expertise and experience in the field. Besides the help from service providers, businesses can also take some simple steps to maintain the reliability of their bookkeeping. To make financial management simpler, faster, and smoother, small businesses can follow some simple bookkeeping tips, such as:
- Make bookkeeping a routine-
Leaving the bookkeeping for the last-minute results in panic and increases the chances of error. It is better to include bookkeeping into the weekly accounting routine. It helps keep a regular check on the records, find any irregularities, and fix them immediately to avoid any further financial management issues. Prepare a list of important tasks like checking invoices and payments, balancing the accounts, accurately categorizing incomes and expenses, recording all receipts, and compiling and reviewing the financial statements. Once the checklist is finished, the business bookkeeping will be at its best. A routine check every week will ensure clean and correct books.
- Separate business and personal finances-
One of the most important things to do for successful accounting and bookkeeping is to separate personal and business finances. Personal income doesn’t count as business income and doesn’t increase business profitability. Mixed accounts need extra time and effort to sort the income and expenses. Any unsorted or wrong entry of personal income and expense as business income and expense will lead to inaccurate profitability of the business, thus affecting future decision-making capabilities.
- Record and document everything-
Maintaining a proper record or documentation for every business transaction helps check the inflows and outflows. Besides aiding with financial reports preparation, it also helps in auditing. Clean records are a compulsion for business audit purposes, and the IRS can audit a business for up to six years.
Therefore, businesses must record everything, keep supporting documents for the records, and maintain the records safely and accurately for at least six years. You may consider using a good tool like Zoho Books to streamline the entire process. Check out this SmallBusiness HQ’S Zoho Books review to understand how it can assist you in financial management
- Keep an eye on accounts receivable-
Monitoring the accounts receivable is a fun and crucial task for a business. It is important to track where the cash flows are coming from and whether the payments are made on time. Especially for businesses that complete the work before client payments. A business must ensure the previous client has made the payment before moving on to a new client project. The weekly accounts receivable management involves sending invoices, recording and tracking the payments, clearing the paid invoices, keeping a proper document trail for cash payments, and following up on unpaid invoices.
- Monitor cash payments-
Checks and online payments have a clear document trail, while cash payments don’t always have that. But, tracking cash payments is necessary. Therefore, businesses must create a system to create an adequate paper trail or documentation for such payments. A business can use a receipt book or good accounting software to track and monitor cash payments. Check the cash receipts with the business cash flow routinely weekly to keep the cash system up-to-date.
- Constant review of financial reports-
Regularly updating the business numbers leads to reliable financial reports. It is best to regularly review the reports to keep an eye on the business’s financial health. Record all the transactions, double-check the supporting documents, and as a final step, run a quick report weekly to ensure the accuracy of the current business situation.
- Use automation-
To efficiently manage all the steps mentioned above, a business can side with automation. Accounting automation means using accounting software to maintain records, prepare statements and reports, and help businesses stay up-to-date with their financial numbers. To manage the entire function, a business will need to hire an in-house team, well-versed and experienced with the accounting software business wants to use.
- Outsource to an expert-
If the business wants to save costs and relieve itself from the responsibility of efficiently managing the minute accounting tasks, the best option is to hire a bookkeeping services provider. The service providers use the latest accounting software and have a team of expert personnel dedicated to handling the business’s accounts.
As crucial as accounting and bookkeeping are for a business, it is also important to regularly review and update them. Weekly monitoring and updating of the financial numbers help sort out any missing invoices and payments, correct incorrect records and have real-time control over the business finances. Accounting and bookkeeping services are the biggest help in these situations as businesses can’t spend too much time and resources managing the bookkeeping and ensuring accuracy. However, it is also compulsory for businesses to monitor business accounting and bookkeeping independently and review the work of outsourced accounting and bookkeeping services providers.